Health Savings Accounts as a financial tool
Health Savings Accounts (HSA) are an important new tool for future financial security. They require personal responsibility to setup and manage. The following notes are my search for understanding the HSA and documentation of what I need to do to manage it.
- Contributions through employer withholding is not subject to either income taxes or FICA
- Contributions made directly to the HSA are not subject to income taxes as they are deducted on tax returns "above the line" - reducing taxable income. Note that this is NOT an itemized deduction.
- A one time transfer from an IRA is possible. Effectively moving future taxable income to non-taxable as long as the future distributions are for medical expenses.
- Distributions from the HSA for medical expenses are not taxable - but the individual must maintain supporting documentation.
- Earnings and growth in the HSA are tax free
- Analyze the fine print of the HSA custodian - there are fees for each transfer in/out, payment of medical claims, and investment management/changes.
Reference information:
- U.S. Dept of the Treasury - Health Savings Accounts (HSAs) THE authoritative site with regulations, FAQs, etc.
- IRS forms and publications:
- Tennessee CPA Journal - Understanding HSAs from December 2007
- Journal of Accountancy - Choose the Right Health Care Account from March 2007
- How to Manage Health Savings Accounts from 6-2008
- How Health Savings Accounts are Taxed from 6-2008
Tags: investments - health - Taxes
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